Stress and strain (Indian Express)

Mains Paper 3:Economy 

Prelims level: Sample Registration System’s 2018 report

Mains level: Indian Economy and issues relating to planning, mobilization of resources, growth, development and employment

Context:

• The first-quarter data on central government accounts, released by the Controller General of Accounts.
• It underlines the stress in government finances stemming from the curtailment of economic activities during this period. 

Four broad trends emerge:

• First, at the aggregate level, the Centre’s gross tax revenues have contracted by almost a third as compared to the same period last year, highlighting the extent of the economic shock. However, as the lockdown restrictions were eased, and economic activity picked up, the pace of contraction in government revenues did ease. 
• Second, with consumption picking up, the recovery in indirect taxes during the first quarter has been far swifter as compared to that in direct taxes. 
• Third, despite this shortfall in tax revenues, central government expenditure has grown in line with what was projected in the Union budget 2020-21. 
• Fourth, and more crucially, the government’s capital expenditure has grown at a much faster pace as compared to its revenue expenditure.

Contraction:

• At the aggregate level, the Centre’s gross tax revenues contracted by a staggering 32.6 per cent in the April-June quarter of the current financial year. 
• However, a closer look reveals that the pace of contraction eased with each passing month. 
• Tax revenues contracted by 44. 3 per cent in April — the first full month of the lockdown — easing thereafter to 22.7 per cent in June. 
• The disaggregated data shows that while direct and indirect taxes contracted by 30.6 per cent and 34.1 per cent respectively, the pace of contraction in indirect taxes has eased considerably. 
• Indirect taxes in June were almost at the same level as last year, driven in part by rising excise collections owing to the steep hike in duties on fuel products. 
• On the direct tax side, the contraction in income taxes by more than a third in the April-June quarter underlines the extent to which the slowdown in activities has impacted individual incomes. 
• Similarly, the 46 per cent contraction in corporate tax revenues in June — the month of advance tax collections — highlights the grim situation for India Inc.
• On the other hand, despite the subdued revenues, the Centre has maintained its expenditure, especially capital expenditure, which was up 40 per cent in the first quarter, over the same period last year. 
• In large part, this spurt was driven by higher spending by the department of food and public distribution and road transport and highways. 
• Government spending on rural development also saw a surge, much of which is likely to be on account of the relief measures to address the fallout of the crisis.

Way forward:

• The first-quarter data on government finances broadly affirms the trend of a gradual pick up in the economy from the lows observed in April. 
• However, with economic activity now beginning to show some signs of plateauing, at lower levels, it underscores the difficulty of fiscal management. 
• Reaching back to pre-COVID levels will depend in large part on the success in containing the virus, and on how economic activity shapes up, especially with the reimposition of the lockdown in several parts of the country.

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Prelims Questions:

Q.1)With reference to the Sample Registration System’s 2018 report, consider the following statements:
1. The SRS 2018 report estimates that in 2018, nearly 66% of the Indian population was between 15 and 59.
2. Two states Andhra Pradesh and Telangana had over 70% of their populations in the working-age bracket. 
Which of the statements given above is/are correct?
(a) 1 only
(b) 2 only
(c) Both 1 and 2
(d) Neither 1 nor 2

Answer: C

Mains Questions:
Q.1) Highlights the four broad trends emerged in India’s economic activity. Do you think the gradual pick-up and signs of plateauing of economic activity underscore difficulty of fiscal management? Comment.